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Universal Health Services (NYSE:UHS)
Q3 2019 Earnings Call
Oct 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by and welcome to the third-quarter earnings call. [Operator instructions] I would now like to hand the conference over to your speaker today, CFO Steve Filton. Thank you. Please go ahead.

Steve Filton -- Chief Financial Officer

Good morning. Alan Miller, our CEO, is also joining us this morning. And we welcome you to this review of Universal Health Services' results for the third quarter ended September 30, 2019. During this conference call, Alan and I will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements.

For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2018, and our Form 10-Q for the quarter ended June 30, 2019. We'd like to highlight just a couple of developments and business trends before opening the call up for questions. As discussed in our press release last night, our reported net income attributable to UHS during the third quarter of 2019 was $97.2 million or $1.10 per diluted share. As calculated on the supplemental schedule, our adjusted net income attributable to UHS during the third quarter of 2019 was $176.3 million or $1.99 per diluted share.

Excluded from our adjusted net income during the third quarter of 2019 was an aggregate unfavorable after-tax impact of $79.1 million or $0.89 per diluted share, most of which related to a provision for asset impairment recorded in connection with our Foundations recovery network business. On a same-facility basis in our acute care division, revenues during the third quarter of 2019 increased 9.3% over last year's comparable quarter. The increased revenues resulted primarily from a 7.4% increase in adjusted admissions, and a 1.6% increase in revenue per adjusted admission. On a same-facility basis, net revenues in our behavioral health division increased 2.1% during the third quarter of 2019, as compared to the third quarter of 2018.

During this year's third quarter, as compared to last year's adjusted admissions to our behavioral health facilities owned for more than a year increased 0.5%, and adjusted patient days increased 0.4%. Revenue per adjusted admission increased 2%, and revenue per adjusted patient day increased 2.2% during the third quarter of 2019, as compared to the comparable prior-year quarter. Based upon the operating trends and financial results experienced during the first nine months of 2019, we are revising our estimated range of adjusted net income attributable to UHS for the year ended December 31, 2019, to $9.60 to $9.90 per diluted share from the previously provided range of $9.70 to $10.40 per diluted share. This revised estimated guidance range, which excludes the unfavorable impact of the Foundations asset impairment, the unfavorable impact of the current year increase in the Department of Justice reserve and related provision for income taxes, and the favorable impact of ASU 2016-09, increases the midpoint of the previously provided range by 3%.

Contributing to and included in the revised estimated earnings guidance range for the year ended December 31, 2019, is an annualized loss of $0.11 per diluted share recorded during the first nine months of 2019, resulting from a decrease in the market value of certain marketable securities held for investment and classified as available for sale. The revised estimated earnings guidance range for the full year of 2019, assumes no change in the market value of these marketable securities during the fourth quarter of 2019. For the nine months ended September 30, 2019, our net cash provided by operating activities increased to $1.049 billion from $949 million generated during the comparable nine-month period of 2018. Our accounts receivable days outstanding decreased to 50 days during the third quarter of 2019, as compared to 54 days during the third quarter of 2018.

At September 30, 2019, our ratio of debt to total capitalization declined to 42.3%, as compared to 42.9% in September 30, 2018. We spent $156 million on capital expenditures during the third quarter of 2019, and $480 million during the first nine months of 2019. During the first nine months of 2019, we completed and opened 183 new beds at some of our busiest acute care and behavioral health hospitals. Just this week, we broke ground on a new acute care hospital in Reno, Nevada, which will house 200 pay -- private patient rooms and is expected to open in 2022.

We also broke ground on a new five-story bed tower at our Centennial Hills Hospital in Las Vegas, Nevada, which will add 56 patient beds, and increase capacity in the neonatal intensive care unit, the intensive care unit, and intermediate and medical surgical units. Our behavioral health joint venture pipeline continues to be very robust. In September, we announced a partnership with Valley Children's Healthcare, in which we will build a new 128-bed behavioral health facility in Madera, California, which is expected to open in 2022. And earlier this week, we announced a partnership with HonorHealth, in which we will build a 120-bed behavioral health hospital in Scottsdale, Arizona, which is estimated to open in 2021.

In conjunction with our stock repurchase program during the third quarter of 2019, we have repurchased approximately 551,000 shares at an aggregate cost of $79.5 million, an average of approximately $144 per share. During the first nine months of 2019, we have repurchased approximately 4.11 million shares at an aggregate cost of $525 million, an average of approximately $128 per share. And since the inception of the program in 2014 through September 30, 2019, we have repurchased approximately 14.78 million shares at an aggregate cost of approximately $1.76 billion, an average of approximately $119 per share. Alan and I will be pleased to answer your questions at this time.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Steve Valiquette with Barclays. Your line is open.

Andrew Mok -- Barclays -- Analyst

Hi, good morning. This is Andrew Mok on for Steve. Just wanted to follow-up on the strong acute volumes in the quarter. How much visibility did you have on the elevated volumes? And what steps can you take going forward to better capture earnings associated with those volumes?

Steve Filton -- Chief Financial Officer

Sure. So obviously, our acute care volumes have been strong all year long, and frankly, have been strong for the last several years, I think, reflecting the underlying strength of the end markets in which we're located, as well as, our continued trends of increased market share. Having said that, volumes increased even more in the third quarter. You'll recall that earlier in the year we talked about an expectation that that could likely happen as we were bringing some new capital projects on in late 2018 and early '19, and I think, we're seeing the impact of that as well.

But as your question suggests, that increased volume did create some challenges for us in the quarter, as we tried to satisfy that volume, we found ourselves in a position of having to use more premium pay, that is temporary nurses, registry nurses, overtimes, shift differential, etc., as well as, other non-labor costs, locums physicians, and contract services, etc., as the volumes increased. While we had some anticipation that we were going to have to deal with those issues, we acknowledged that we're operating in most of our markets with pretty tight labor conditions. And even where we're anxious to fill vacancies on a permanent basis, we're not always able to do so immediately. So, that I think, was the challenge in the quarter and why we were unable to bring as much of that revenue and volume growth, pull it through to the EBITDA line.

But I think, we have a point of view that our operators, historically, have responded to these sort of challenges, and will, in short order, drive greater efficiencies as they adjust for these higher level of volumes.

Andrew Mok -- Barclays -- Analyst

Great. As a follow-up, is it fair to say that underlying wage growth remains within expectations in the low single-digit percent range?

Steve Filton -- Chief Financial Officer

I think that is fair.

Andrew Mok -- Barclays -- Analyst

OK, thanks.

Operator

Your next question comes from Kevin Fischbeck. Your line is open.

Kevin Fischbeck -- Analyst

Hey, great. Thanks. Just wanted to maybe understand the guidance adjustment a little bit. You know, I guess, you cut it by about $0.30, and it looks like in the quarter, $0.13 was due to the marketable securities dynamics.

So, compare this guidance versus the last guidance, $0.17, I guess, is operational. Is there anything else besides EBITDA that changed in your view between previously and today?

Steve Filton -- Chief Financial Officer

No. I don't think so, Kevin. I think, effectively, we were adjusting our guidance, as you suggest, for the miss in the third quarter and for the negative adjustment for the marketable securities that, as you might expect, we really have no way of projecting.

Kevin Fischbeck -- Analyst

And when I think about how you changed the guidance, you know, you changed the low end basically for the change in marketable securities but you changed the high end by a whole lot more. So, can you talk a little bit about kind of, I guess, maybe what the hope was, your expectation was, and I guess maybe, what the implication is for Q4? I guess, you kind of seemed optimistic that the labor costs on this, at least on the acute side, can be fixed relatively quickly. Is that not going to be a Q4 dynamic?

Steve Filton -- Chief Financial Officer

Yeah. I mean, I think it's just a mechanical sort of exercise, Kevin. As you know, there's one quarter left in the year in order for us to get to the high end of that original guidance. The performance, quite frankly, of both segments would have to have improved rather markedly.

I think, while we're -- we have an expectation that we can improve both -- the underlying trends in both business segments, in the next quarter, there's a -- by definition, sort of almost a limited amount that we can do.

Kevin Fischbeck -- Analyst

OK. And then, just maybe the last question. On the psych side, I guess, we saw a slowdown in growth sequentially. Is there anything that you would point to there? And I guess, how do you feel about the pace and timing of ramping that back up to what you talked about as a normalized growth rate?

Steve Filton -- Chief Financial Officer

Sure. I mean, the revenue needle is not moving a great deal in the behavioral segment, but I understand that people are very focused on it. I think for the first three months of the year, same-store revenue grew by about 3%, in the second quarter it grew by about 2%, so, it was a slight step-down. There was really nothing terribly extraordinary in the third quarter.

Some minor items. We had, you know, currency headwind in the U.K. that was probably worth about $3 million headwind to EBITDA. We had a couple of million-dollar headwind to EBITDA from the continued ramp-up and reopening of our behavioral facility in Panama City, Florida, that had been closed by the hurricane a year ago.

And we have a continued drag from our addiction treatment business, which was probably a $3 million to $4 million negative EBITDA drag in the quarter. Other than that, I wouldn't have called out anything sort of extraordinary. I think, we continue to be challenged in selective markets and hospitals with labor shortage issues, where we're having to cap census and turn away patients. But I think, over time, we think that we can correct those situations, and that volume and revenue growth can be restored in the behavioral segment.

Kevin Fischbeck -- Analyst

Great. Thanks.

Operator

Your next question comes from Justin Lake. Your line is open.

Justin Lake -- Analyst

Thanks, good morning. Can we talk a little bit about acute care pricing, Steve? About 1.5% this quarter. I know you looked for closer to 2.5%, and that might have been one of the headwinds to acute here in 3Q. So, can you walk us through what the issues were here in the quarter, and kind of highlight mix, both on the commercial mix and acuity while you're doing that? Thanks.

Steve Filton -- Chief Financial Officer

Sure. Just to sort of reframe things for everyone, we went into the year with an expectation that acute care revenues would grow in the 5% to 6% range, and we presumed that that would be split pretty evenly between price and volume, like 2.5% to 3% increase in both. Obviously, from a volume perspective, we've been exceeding those numbers by a very significant amount all year long. And as I said before, even increasing some in the third quarter.

On the pricing side, it's been a little volatile. But for the year and for the third quarter, pricing, as you know, Justin, is sort of in that 1.5% range, which is 100 to 125 basis points kind of short of our expectation. I think in the third quarter, that's probably a function of maybe three discrete trends. One is with the extremely high ER volumes.

ER visits were up 6% to 7% in the quarter. We've seen an increase in uninsured. You know, we've seen our uninsured volumes tick up for the quarter. We've also seen -- even though we had relatively strong surgical volumes in the quarter, I think overall, surgeries are up 5% or 6% in the quarter with overall admissions up 7.5%.

It implies that we are seeing a slight skew to more medical cases rather than surgical cases. That also sort of tends to mute acuity a little bit and drive down pricing. And finally, I think we're seeing some more aggressive behavior on the part of our payers, and we saw an elevated level of denials in the quarter. So I think, those three items: elevated denials, slightly higher uncompensated care, and slightly lower acuity, as the three items driving that, what I'll call, 100 to 125 basis points shortfall in pricing for the quarter.

Justin Lake -- Analyst

OK. And then, if I could just follow-up, you know, looking ahead to 2020, Steve. I know your typical framework is mid- to high-single-digit acute, and you're pretty conservative coming into the year, and I think rightly so, on behavioral kind of probably in the flattish range with some share repurchases. That -- is that how we should think about the framework for 2020? Or anything around that that could kind of move the needle we should be considering? Thanks.

Steve Filton -- Chief Financial Officer

Yeah. I mean, we will not formally give our guidance until our fourth-quarter earnings at the end of February, but I think, the way that you've framed the underlying assumptions for the two business segments, kind of the way we framed it in 2019, is I don't know that we'll feel terribly differently. But we certainly would like the benefit of the ensuing four or five months to give us a better perspective on how the two businesses are trending. Again, you know, my overall comments are we're pleased with the acute care volumes, and they're really sort of at extraordinary levels.

And again, I think that reflects the underlying strength of our franchises, but we also expect that we'll be able to drive more efficiencies and better margins out of those -- out of that level of volume and revenue growth over time. And on the behavioral side, that we continue to work in a very focused way to restore the volume and revenue growth. And I will point out, one encouraging trend in that quarter in behavioral is we've seen some stabilization in length of stay, which has really been kind of a troubling dynamic for us for several years. So, if length of stay can stabilize and remain stabilized, I think we've got a bunch of strategies in place to drive higher volumes.

But you know, when we give our guidance in four or five months, we'll be more explicit about that for 2020.

Justin Lake -- Analyst

All right. Thanks a lot for the color.

Operator

Your next question comes from Ann Hynes. Your line is open.

Ann Hynes -- Analyst

Hi, good morning. Can you give admission trends per payer class, like the uninsured, commercial, Medicare, and Medicaid? And I know you had an uptick in uninsured. Are there any specific states that are more troubling than other states?

Steve Filton -- Chief Financial Officer

So Ann, you know, I'll just sort of broadly try and give some color. You know, if our overall admissions are growing by 7.5%, thanks to our adjusted admissions. I think Medicare admissions are growing the fastest, then Medicaid, then uninsured admissions. And I think, commercial admissions continue to be positive but are probably growing in sort of the low-single-digits, maybe 3%, 4%.

And uninsured admissions, which had been growing maybe 5%, 6% in previous quarters are maybe up to 8% or 9%. Just given again, I think, it's really driven by that increased level of ER activity. In terms of sort of the geographic kind of dispersion of that, I think, we've long sort of disclosed that our biggest uninsured markets tend to be in South Texas and in Amarillo. You know, that hasn't changed, but I think the increase in uncompensated volumes in the quarter is pretty widespread because again, the strength in our ER volumes are pretty widespread in the quarter.

Ann Hynes -- Analyst

All right. And one last question. I'm surprised you didn't buy back more shares in the quarter given your increased authorization last quarter. What goes into making that type of decision on a quarterly basis? And in general, can you talk about the acquisition market going forward?

Steve Filton -- Chief Financial Officer

Yeah. We continue to pursue a great many acquisition -- potential acquisition opportunities in both the acute and behavioral space, as well as, organic capital investments. And I described a few of those in my opening comments. And again, particularly I think on the acute side, I think that the extraordinary volume growth that we're experiencing is a function of, at least in part, some of these really well-placed capacity additions in our growing markets.

So, we feel good about that strategy. The problem with potential acquisitions is we look at a lot. It's always hard to tell what will pay off and what won't, and we'll see that happening. I mean, I think from a share repurchase perspective, we talked about buying, you know, back something like $700 million or $800 million worth of shares for the year, and I think we're sort of on that -- on pace to do that.

I think we respond to what we consider to be buying opportunities as they arise. Certainly, earlier in the year, I think we responded to some softness in the stock price that we thought was driven by, I'll sort of call, exogenous sorts of factors like concern over Medicare for all or some of these sort of regulatory concerns or legislative concerns that we thought were sort of not very well played. So, you know, we continue to do that. And again, I think if you look back, I think the metrics that I described in my opening remarks are reflective of the fact that over the last four or five years, we've been a very steady buyer of our shares, and I think we'll continue to do so and accelerate that activity where it seems like there's an opportunity in the market for us to do so.

Ann Hynes -- Analyst

All right. Thanks.

Operator

Your next question comes from Josh Raskin. Your line is open.

Josh Raskin -- Analyst

Hi, thanks. Good morning. So Steve, and I know -- I'll admit it's probably a little bit of an unfair question. So, I'm not sure if there's a great answer.

But just the volatility in the acute segment earnings, it seems like volumes have been relatively strong the whole time. Your revenue -- you know, all year, your revenues, but sort of in and outs of the quarters. I guess I'm just curious what's creating that sort of EBITDA fluctuation. I don't know if there's been big benefit design changes or flu or seasonality or if there's something else in the market? Or is it just it's a relatively small number of hospitals and quarters are short periods? Any thoughts on that would be helpful.

Steve Filton -- Chief Financial Officer

I don't think it's an unfair question, Josh. I mean, there has been certainly more volatility particularly in the acute care business this year that I think we've been accustomed to historically. In the first half of the year, we talked a lot about sort of the service line mix that the year started with really rather soft surgical volumes and that rebounded late in the first quarter and continued into the second quarter. And that sort of skewing of medical procedures in the first quarter and surgical procedures in the second quarter created that level of volatility.

In the third quarter, I just described what I thought were the main metrics affecting kind of a slightly lower-than-expected pricing or revenue per unit. I don't really know what to say. I mean, it's -- volatility is sort of what it is. To the degree that these sorts of things occur, I think that the business will be a little bit lumpier than we expect.

Again, I think, what we view as most encouraging, particularly, in the acute care business, is how strong the volumes are and sort of how relatively consistently strong they've been. And I think, we have a point of view that, as time goes on, our operators will be in a position, regardless of some of the volatility in expenses and some of the volatility in pricing, there's a real advantage to be able to deal with those strong volumes and there are real efficiencies that can be garnered from that. And I think over time, and over more than a single quarter, we'll be able to do that.

Josh Raskin -- Analyst

OK. That makes a lot of sense. And then, just within the psych side. You know, Foundations, obviously, hasn't worked out as expected.

Could you sort of just give us an update on thoughts around the addiction treatment segment overall? Was this kind of more Foundations-specific? Or do you think this is sort of industry trends -- you know, more consistent with the industry trends? Just curious to get your perspectives on that segment specifically.

Steve Filton -- Chief Financial Officer

Sure. Well, we made it a point, when we acquired Foundations back in 2015, that this was not a new entree for us into the addiction treatment business. For as long as we've been in the behavioral health segment, we've been in the addiction treatment business. We've had dedicated, I'll call them, legacy facilities, dedicated addiction treatment facilities.

We offer addiction treatment services and units in many of our general psychiatric hospitals. So, we were really just increasing our investment in the addiction treatment business, and really acquiring a company that had a different model than what had been sort of our legacy model. So, the Foundations model was really premised on a few different things. One was kind of direct-to-consumer marketing.

They had a very sophisticated infrastructure in which they advertised and -- on the Internet, and on media, and would get patients to call and contact them directly, and then, they would process those patients for medical necessity and appropriate treatment locations, etc. So with direct-to-consumer marketing, there was kind of a blend of in- and out-of-network pricing and there was a fair amount of travel for treatment for patients. And I think, what has really changed in terms of, I'll call that that sort of new style Foundations model, is that all of those metrics have really been challenged by the payers over the last several years. So, there is much less out-of-network.

It has really been almost now a turn to largely in-network model. There is much less travel for treatment. And there is also just, I think, more and more control by the payers, and less and less by the consumers themselves about where treatment can be rendered. So -- and it just made, in the last three to four years, that underlying kind of new style model more challenging.

I will make the point that many of our legacy addiction treatment facilities, and the units within our general psychiatric hospitals have continued to function very well, and respond to what, I think, what we all recognize, is a growing addiction illness issue in the U.S. and demand. So, the challenge that we've had and we are responding to is how do we adjust that Foundations model. And we are very focused on doing that and doing it quickly, reducing the drag on our earnings.

And I think, in short order, we'll either revise the model or we'll envelop the Foundations facilities more in sort of -- into our legacy model. But one way or the other, I think, we are committed to reducing the drag on our earnings in very short order.

Alan Miller -- Chief Executive Officer

I'd add that, for the first few years after the acquisition, we did very well in the business. But then the nature of the business changed, as Steve pointed out, how patients were contacted, did contact, travel, and we are making adjustments to the change in the business.

Josh Raskin -- Analyst

Perfect. Thank you both.

Operator

Your next question comes from Scott Fidel. Your line is open.

Scott Fidel -- Analyst

Hi, thanks. First question. Just might be helpful, just given some of the different moving pieces in each of the segments. Just how in the third quarter the shortfall broke down relative to the internal plan between the acute care and behavioral business if you have sort of like a percentage breakdown of that.

Steve Filton -- Chief Financial Officer

Sure, Scott. So sometimes, we'll point out differences between our internal budget and the Street consensus. But on an overall basis, our internal plan this quarter was pretty close to the Street consensus. And so obviously, we were short of plan.

I would say that shortfall was probably predominantly in the behavioral segment, maybe two-thirds of the shortfall in behavioral and one-third in acute. On the acute side, I think, we were closer to our internal plan, although the sort of components of how you get there were a little bit different. Obviously, our volumes are a lot higher than we expected. And as we discussed earlier, our operating efficiencies and our pricing were a little bit lower than we expected.

On behavioral side, as we talked about, volumes and revenue took a slight modest step back in the quarter. But I think, we're operating at pretty high-efficiency levels there. So even with the slight decline in revenues and volumes, it just makes it tough to wring any further operating efficiencies out of the business. And obviously, our prominent concern is the quality of care to our patients.

So, we're not going to compromise that in any way to put some pressure on the margin.

Scott Fidel -- Analyst

Got it. That's helpful. And then, just as my follow-up, Steve. I know there were some recent changes in Texas on the uncompensated care pool, but I know that there are some puts and takes around how that sort of translates to net.

Can you maybe just sort of walk us through how that increase will flow through, and then, what some of the offsets are and how you're thinking about that on a basis? Thank you.

Steve Filton -- Chief Financial Officer

Yeah. So -- and I'm doing this -- a little bit of this from memory, Scott, but I believe that sort of the headline news was that Texas was increasing their pool of uncompensated care funds for the next fiscal year by about 25%. But when we sort of ran through the calculations and the allocation, I think our perspective was that our uncompensated care reimbursement would increase by about 8% or 9% in Texas in the coming year.

Scott Fidel -- Analyst

OK. Thank you.

Operator

Your next question comes from Steve Tanal. Your line is open.

Steve Tanal -- Analyst

Good morning, guys. Thanks for taking the question. I thought maybe I would just ask a couple of quick ones, maintenance things and then maybe, one on strategy. I guess on acute, could you give us a sense for what you think the impact of those new capital projects were, Steve, that you had called out on adjusted admissions? And then maybe, just the extra business day, do you think that had any impact? Or is there any way to think through that one?

Steve Filton -- Chief Financial Officer

So, I'll take the second one first, Steve. I know that lots of companies talk about it, etc. We tend to ignore these calendar impacts. I think not because they're not real or they might not have a short-term impact, but I think, our point of view is that, over an extended period of time, extra weekday in a quarter or an extra holiday in a quarter, whatever it is, really doesn't make a difference, and doesn't enter into the way we're managing the business.

As far as -- it's difficult to say sometimes precisely the impact of -- we're adding capacity, we're adding ER capacity, exactly how many of our incremental ER patients are related to the new capacity or new beds or new cath labs or new ORs. But I think, we definitely had a perspective, and I think, we talked about it earlier in the year, I think in the first and second quarter, people looked at the ramp-up that we had in the back half of the year and questioned a little bit of a logic of why we were expecting stronger growth, particularly, on the acute side in the back half of the year. And I think, we responded at the time that we had a number of kind of, what I'll call, the medium-sized $25 million, $35 million projects coming on. Things like an expanded emergency room in our Manatee, Florida hospital or an expanded emergency room, and in-patient capacity at our Texoma facility in Denison, Texas.

And again, I think that the uptick in admissions for the quarter is reflective of some of that. But in terms of being able to precisely identify sort of exactly how much of the incremental admissions in the quarter are related to the capital add, it's a little hard to do.

Steve Tanal -- Analyst

Fair enough. And then, just DSH payments. Where did those come in Q3 in total? And how did that compare to a year ago? Is there a swing there?

Steve Filton -- Chief Financial Officer

Yeah. So -- I know you're among those most focused on the schedule that we had in the 10-Q and 10-K that describes our supplemental payments. And so, this will be more clear to see when we file our Q in a couple of weeks. But I think, that our supplemental payments increased by about $24 million in the third quarter of 2019, a combination of Texas uncompensated care and California UPL.

That compares, I think, to about a $19 million increase in the third quarter of last year. So, the net tailwind was about $5 million in this year's third quarter versus last year's.

Steve Tanal -- Analyst

Perfect. And then one more maintenance and then maybe one question on strategy, sorry. But the guidance, just to confirm, are you maintaining guidance for revenue and adjusted EBITDA? Or they're suspending? Or what's the view there?

Steve Filton -- Chief Financial Officer

Yeah. I think, mechanically, it's always been -- it's just been our practice to kind of midyear, we revise our EPS guidance and we just sort of assume that people will revise revenue and EBITDA guidance proportionally.

Steve Tanal -- Analyst

Fair enough. OK. And then finally, just the last one here, sorry for the length here. But just with the overall trends in behavioral and kind of the reasons you cited in the release for the impairment charge, and obviously, just stellar results in acute continuing, how are you guys thinking about capital allocation and expansion kind of between the businesses? Is there a reason to start prioritizing acute expansion? Or do you think it's early to make such determination? Just more strategically, I would appreciate that view.

Thanks a lot.

Steve Filton -- Chief Financial Officer

Yeah. Look, I've been doing this for a long time, and Alan's been doing it a lot longer than I have, and I think, we are sometimes amused because, over the years, the tone of questions change. You know, we've gotten questions for years, why would we ever invest in the acute care business? The behavioral business is doing so much better. And in recent years, maybe the tone of that has changed a little bit.

I think we tend to view our two business segments on a much longer-term basis. I think, we believe that they are both very sound, growth-oriented businesses that each have faced challenges in the short-term. But -- and look, I think that when you think about the behavioral business, and you think about our integration or joint venture strategy, it's reflective of the fact, when we started this process of talking to acute care hospitals about taking over their behavioral businesses, we kind of assumed that many of these not-for-profit acute care hospitals would just sort of turn over their acute care businesses -- I mean, their behavioral businesses to us, you know, lease their beds to us, sell their facilities to us. And I think, we found that they remain extremely bullish about these businesses.

Even though they haven't done a great job of managing them, and they haven't been terribly efficient, they acknowledge that the demand for behavioral services is doing nothing but growing. And they are seeing more and more behavioral patients in their acute care ERs. And so, instead of just leasing beds and taking over these units, so many of these projects have turned into new joint capital projects, building new hospitals and building new beds with our acute care hospital partners to build new behavioral beds. And I think, it's just a reflection of their and our bullishness about the idea that this business is just -- the demand for it is just going to continue to grow for the foreseeable future.

So that -- we have no desire to, in any way, sort of reduce our exposure to this business, which certainly, doesn't mean that we're not going to make selective decisions to reduce our exposure to businesses. This model may not be working like Foundations and increase in other areas. But overall, we remain very bullish about the behavioral business.

Alan Miller -- Chief Executive Officer

Yeah. Let me just add that we make our investments basically for longer run, and the nonprofit sector and ourselves are looking long-term for population health. And I think, that's created a great need on their part for ability in the behavioral health sector, which they haven't had. So, we have a number of opportunities for joint ventures.

And Steve has enumerated a few in his opening remarks, and I just see that continuing.

Steve Tanal -- Analyst

Perfect. Thank you, guys.

Operator

Your next question comes from A.J. Rice. Your line is open.

A.J. Rice -- Analyst

Hi, everybody. Just a couple of things, still sort of getting into some of the areas that have been already talked about. But in acute care, obviously, the top-line was strong, but there were sort of these negative expense leverage that hit the earnings from the division. So, if I think about the reasons that you get that kind of leverage, I mean, obviously, could be expenses are growing more rapidly just in and of themselves doesn't sound like you're pointing to that.

It sounds like you may be pointing a little bit to price and mix as an issue there, but then, there's also this adjusting for the increased volumes. And I don't know if there's any way to break out or give a little more color as to how much will be pricing mix versus the adjusting to the volumes. But I'd also be interested whether when you look at that adjusting, staffing, and etc. to the volumes, do you think that is just the way it goes in a volatile period where the numbers are bouncing around from quarter to quarter? Or do you look and say, hey, maybe we don't have the timely data coming up to our operators that we need, and we need to do some investments there or maybe our operators are a little flat-footed responding.

I guess I'd be interested in your perspective on how you assess that. Is that just something you just got to live with? Or are there things you can do to adjust for it?

Steve Filton -- Chief Financial Officer

So I think, fundamentally, A.J., the reason that the hospital business has always been, one where there's a decent amount of operating leverage as volumes and revenues increase is because, ultimately, and I think it's particularly true in the acute business, a good chunk of our expenses and cost structure is fixed and semi-fixed. So, when a new patient, an incremental patient comes to the hospital, in theory, the only really variable and incremental cost is the nurse at the bedside and whatever specific supplies and drugs that that patient consumes. And so as a consequence, in theory, there's a great deal of operating leverage that should be available as you get more and more incremental business. And we've gotten a lot of incremental business in the last quarter, and frankly, over the last year.

The challenge has been, we're getting that business in a pretty robust economy with very low unemployment, basically, full employment. And I think, in our markets, maybe even more robust employment than the national average. And as a consequence, we're filling a lot of that variable costs with much more expensive variable costs, with overtime, with temporary nurses, registry nurse pay, etc., and even locums physicians, and all that sort of stuff. And so you're -- I think, mitigating a lot of what would be the traditional benefit.

Over time, and I don't think it's over an extended period of time, but over time, we'll solve that problem by filling vacancies more permanently by negotiating with vendors more effectively, etc. But that's the challenge. That's -- the short-term challenge is that we're reducing what would otherwise be the traditional operating leverage with a lot of premium pay and sort of related expenses. But over time, we should be able to solve that problem, and I think our operators have demonstrated the ability to do that over long periods of time a great many times.

A.J. Rice -- Analyst

OK. And then on the behavioral side, obviously, it's not a huge swing from approaching 3% comparable growth, same-store growth to 2%. But obviously, you had a meaningful impact on the trajectory on the profits of the business. So I guess, I'm wondering there, we heard about things like Medicaid dis-enrollment, that the Medicaid numbers are down.

And I know, behavioral gets a decent amount from state programs. I know the third quarter, in particular, can be a volatile seasonal quarter for behavioral. Is this maybe just a more broad swing in seasonality than normal? I guess you've talked about for a couple of quarters now as length of stay stabilize, you need to be more aggressive in getting the admissions through, and that there's a little bit of an offset there that you need to compensate for. Any flavor on those other items and how much they may have -- I mean, is this just an unusual seasonal swing that sometimes you get? Or is Medicaid attrition having any impact?

Steve Filton -- Chief Financial Officer

So look, I think you make a decent point. Our third quarter, I think particularly in behavioral, tends to always be our softest quarter. Particularly in the adolescent business, when kids are not in school, we tend to get fewer referrals from -- in our adolescent business. But that's, I think, true every third quarter.

You know, look, the challenge, and you sort of described it as you framed the question is, revenue growth dropped from 3% in the first six months to 2% in the third quarter. It's a pretty small decline. I highlighted a few items earlier in the call that I thought contributed to that decline. The currency impact in the U.K.

and the Foundations business, and the Panama City facility. But other than that, I mean, there was nothing that I think we or our operators could identify in the quarter that was really a specific negative trend in the quarter, etc., which is why I think we have a point of view that we'll rebound more in the next few quarters to the levels we have been running.

A.J. Rice -- Analyst

OK. Thanks a lot.

Operator

Your next question comes from Sarah James. Your line is open.

Sarah James -- Analyst

Thank you. You mentioned that there were some increased denials from payers on the acute side. Can you provide more color on that? Was there a pattern for the type of service that was being denied? And is it just a few payers? Or is it more of a widespread trend?

Steve Filton -- Chief Financial Officer

So, I would say -- and again, this is certainly not the first time that we mentioned the fact that our payers, on frankly, both sides of the business, have gotten more aggressive in the last several years about admission criteria and medical necessity, etc. I would say that probably, the most common area of denials on the acute side is over the issue of in-patient status versus observation. So, it's really not so much an issue of whether a patient belongs in the hospital, as it is an issue of whether they should be categorized as an in-patient or an observation patient. Obviously, as an in-patient, they would merit a higher reimbursement.

I don't know whether the third-quarter activity is really reflective of a change in behavior on the part of payers or just sort of kind of a coincidental thing. I will say, Sarah, it is not specific to a specific payer or a specific geography. It is something that we're seeing relatively widespread. And to be fair, it's not terribly new and we have a lot of infrastructure in place to deal with the issue of proper classification of patients.

We engaged third-party expertise to lend some objectivity to the process, and some weight toward -- to the degree that we're having disputes with our payers. So, we continue to be focused on that. But as I was just describing a little bit of the softness in pricing for the quarter, I thought that the elevated level of denials did contribute, at least partially, to that.

Sarah James -- Analyst

That's very helpful. And one more clarification. You've talked a lot about the mechanics of bringing on temporary staff when volume grows. I'm wondering if you could help size the impact it might have had to expenses in the third quarter.

Because you've also talked about it kind of subsiding in the next couple of quarters. So, just wondering how impactful it was on the third quarter specifically.

Steve Filton -- Chief Financial Officer

Well, I guess, just broadly, I would point to the fact that the expectation would be that -- and revenues are growing by 9% or over 9%, as they were in the third quarter. You would expect your expenses to be growing at a slower rate, and particularly, I think, on the salary and the other operating expense line, because that's where you have a lot of your fixed and semi-fixed costs. I think supplies tend to be much more variable. And I think, if you look at the quarterly results, those expenses are growing as fast, if not faster, than revenue.

And I think, again, the main reason for that and the main reason we're not able to drive more efficiencies are the dynamics I described before. I don't know that I can size it any more precisely than that. I think, it's just kind of that broad impact you'll see on the financial statements.

Sarah James -- Analyst

Thank you.

Operator

Your next question comes --

Alan Miller -- Chief Executive Officer

Let me -- yeah. Before that question comes in, let me tell everyone a couple of things that I've been thinking about. Number one, the whole question of the DOJ is largely completed, and we've had very few to no questions about that. Steve discussed addiction treatment, and he discussed a little bit about, in the U.K., the value of the pound, etc.

There is a -- the government reports in the U.K., a shortage of behavioral health beds, and we are growing there. So, that's very positive. And in addition, at some point, Brexit will be resolved, I'm sure, and that will stabilize the currency. And the other thing is that we have about $1 billion available for stock repurchase.

And if I suspect we have a buying opportunity, we'll certainly employ that. So, I just wanted to cover those things.

Steve Filton -- Chief Financial Officer

We'll take the next question.

Alan Miller -- Chief Executive Officer

Yeah.

Operator

Your next question comes from Ralph Giacobbe. Your line is open.

Ralph Giacobbe -- Analyst

Thanks, good morning. Steve, could you just remind us what percentage of admissions are uninsured at this point? And then, just any general thoughts on what you do attribute that sort of creep or jump in the uninsured too at this point? I know A.J. asked about sort of the reverification and redetermination on the behavioral side. Do you think there's any sort of impact on that as Medicaid rolls, maybe are under some pressure and as it relates to sort of the acute care side of the business? Thanks.

Steve Filton -- Chief Financial Officer

Yeah. So, I mean, I think, I said earlier that our admission growth was 7.5% for the quarter. I think, uninsured admissions probably grew by 8% or 9%. You know, I think, it's largely driven by emergency room activity, which tends to be a little bit more skewed to the uninsured.

I think, most uninsured patients enter the U.S. healthcare system through acute care emergency rooms. So to the degree that our activity is increasing, I don't think we find it surprising that we're seeing more uninsured patients. I think the other thing is there's been a fair amount of speculation and it seems reasonable that since the elimination of the individual mandate, there are fewer people who find it necessary to have insurance or particularly exchange insurance under the ACA.

So, I think there is -- there probably is an uptick nationally in the number of uninsureds who are no longer concerned about the individual mandate, and that's being reflected a little bit in our payer mix.

Ralph Giacobbe -- Analyst

OK. Fair enough. And then just to clarify, Steve, I just -- I was hoping you can give us just the percentage of admissions that are uninsured. So, what percentage of your admissions are uninsured at this point? Not necessarily the growth, just what percentage is.

Steve Filton -- Chief Financial Officer

Yeah. So I think, we're just not connecting here, Ralph. What I said -- so I think, probably somewhere in the 7% or 8% range of our total admissions are uninsured.

Ralph Giacobbe -- Analyst

OK. Sorry about that. OK. All right, fair enough.

And then you know, a little bit of maybe an unfair question. We're obviously less than a month into the fourth quarter, but you did this -- sort of in the first quarter, you did -- were will you sort of mention, any early indicators on either the surgical volume or the uninsured or just general mix at this point?

Steve Filton -- Chief Financial Officer

Yeah. I mean, the comments in the first quarter, I think, were a little bit different because the main issue was the sort of -- the main issue that was sort of, I think, a drag in the first quarter was this negative medical/surgical mix. And I think we were simply indicating that toward the end of the first quarter and into the second quarter, the surgical mix had clearly strengthened and was continuing to strengthen into the second quarter. I would say there's nothing extraordinary in our early view of October, which is almost exclusively on a volume basis.

I think the trends have largely continued in both businesses, but I think, it's way too early to make any judgments about the ultimate direction of the quarter at this point three weeks into October.

Ralph Giacobbe -- Analyst

OK. Fair enough. Thank you.

Operator

Your next question comes from Pito Chickering. Your line is open.

Pito Chickering -- Analyst

Good morning, guys. If I can go back to A.J.'s question on behavioral. So, I understand the headwinds from FX and Panama City in, like, addiction treatment programs. But save for FX, the other two issues were already embedded in the second half growth or the first half growth rates, so trend is definitely down.

On a move from 3% to 2% isn't a big move, neither is the move from 2% to 1%. So, can you give us a little more detail on why you're confident it will bounce back? Do you have good visibility on staffing being added? So, you don't need to turn patients away if you have new beds coming online. Could you sort of give us more reasons why you're so confident?

Steve Filton -- Chief Financial Officer

Yeah. Look, Pito, I mean, it's a fair comment, but I think our perspective is, we had been growing the behavioral business in that sort of 3%, 3.5% range for a relatively extended period of time. So I think, we're viewing the third-quarter performance as more anomalous. But to your point, I mean, we certainly can't guarantee that, but our expectation and our confidence as we move forward is based on looking back on the last five or six quarters, where more often than not, we were hitting that 3%, 3.5% mark than the lower 2% mark.

Pito Chickering -- Analyst

OK. Fair enough. On supplemental payments, you talked about Texas. Like, as I think about sort of fourth quarter in 2020, any changes in California or other states we should be aware of?

Steve Filton -- Chief Financial Officer

I mean, that'll again, be clearer when we file our Q have the schedule. But I think, we're expecting a slight increase in supplemental payments in Q4, not a terribly material number.

Pito Chickering -- Analyst

OK. And the last question is, stocks are off today. Have you guys ever considered doing an accelerated share repo?

Steve Filton -- Chief Financial Officer

Yeah. I think we consider sort of all the alternatives. Again, I think one of the things that makes us a bit reluctant to pursue some of the big bang kind of strategy like that is we do like to keep our flexibility to respond to external -- other external opportunities as they arise. But I think we're -- I think, we're always open to consider what we think makes the most sense.

Again, I think, we've done pretty well. We view it as an opportunistic repurchase of a pretty substantial number of shares over the last several years.

Pito Chickering -- Analyst

Great. Thanks so much.

Operator

Your next question comes from Peter Costa. Your line is open.

Steve Filton -- Chief Financial Officer

And operator, we're going to make this our last question. Go ahead, Peter.

Peter Costa -- Analyst

Good morning, everybody. Outpatient seems stronger, it's hard to tell given gross to net, and also, related to sort of the ongoing movement of services there or maybe perhaps the insurer denials or the ER volumes or the new capacity adds. But one of the things that I'm curious about is, could you tell, was there any kind of an increase related to patients being over their deductibles such that you might see that accelerate into the fourth quarter?

Steve Filton -- Chief Financial Officer

Yeah. So, Peter, it's a good question. The challenge for us is that's difficult information for us to really kind of synthesize in a meaningful way. I think the payers are in a much better position to kind of be able to answer that question.

I will say that, historically, I think this issue of patients sort of accelerating activity as they satisfy their deductibles tends to be more of a fourth-quarter issue. But again, we tend to have to speculate about those trends because we just don't have enough of a database of information to be able to really sort of be able to evaluate that in a meaningful way.

Peter Costa -- Analyst

And then second question, you outlined new openings from your capital expenditure programs, and also, higher labor costs due to agency from the higher volumes. I'm curious if your -- some of those new openings from your capital spending programs were operating below capacity. And so, as you fill capacity there, they will come online? Or is really the labor-cost issue all tied to agency and just new hires?

Steve Filton -- Chief Financial Officer

I think it's more the latter, Peter. I think, just as the volumes increase, obviously, we've got to have the qualified clinical personnel to treat this bolus of incremental patients, which is quite significant, and it's just expensive to do. So, because we're paying a fair -- and over time and registry pay, again, is -- we call it premium pay because it truly is that, oftentimes 50% or 60% or 70% premium over base pay. So, to the degree that you're using that sort of pay, it can eat up your margins pretty quickly.

Peter Costa -- Analyst

OK, thanks. And I'll ask the last question, just more for Alan. You talked about Brexit a little bit as an impact to currency. But there's been so much uncertainty over there tied to Brexit right now.

Is there any kind of slowdown in volume or slowdown in referrals that you're getting or your business there? And could that accelerate if there is a Brexit decision in the short-term? And then would that get worse down the road as sort of the issues kind of become more clear?

Steve Filton -- Chief Financial Officer

I'll answer the question, Peter. I mean, I think, the reality is that I think that demand for behavioral services, in particular, is really pretty insensitive to what's going on with Brexit. That seems relatively intuitive, the sort of issues that create demand for behavioral services are really going to be pretty independent of that -- those sort of exogenous factors. I do think the way, in theory, the business does get affected is if there's a change in the labor environment, as a result of Brexit or if there's a change in NHS funding as a result of Brexit pressures, that's kind of a different story.

But in terms -- and we don't necessarily anticipate those things happening. But in terms of demand, I think, we've seen really no impact as a result of the overarching Brexit uncertainty in the country.

Peter Costa -- Analyst

Thank you.

Steve Filton -- Chief Financial Officer

OK. Operator, we'd like to thank everyone for their time, and look forward to our fourth-quarter call in February.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Steve Filton -- Chief Financial Officer

Andrew Mok -- Barclays -- Analyst

Kevin Fischbeck -- Analyst

Justin Lake -- Analyst

Ann Hynes -- Analyst

Josh Raskin -- Analyst

Alan Miller -- Chief Executive Officer

Scott Fidel -- Analyst

Steve Tanal -- Analyst

A.J. Rice -- Analyst

Sarah James -- Analyst

Ralph Giacobbe -- Analyst

Pito Chickering -- Analyst

Peter Costa -- Analyst

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